-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HS1+WR/pOAbxVeEJAIkGINDgDhFaIHTmgT3CT437+IY9x3GWzwrWKnFUDw8UsZum k9Zys4rW9IGvXMs9iFYrpg== 0000950152-04-004110.txt : 20040517 0000950152-04-004110.hdr.sgml : 20040517 20040517115900 ACCESSION NUMBER: 0000950152-04-004110 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIFCO INDUSTRIES INC CENTRAL INDEX KEY: 0000090168 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 340553950 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05978 FILM NUMBER: 04810611 BUSINESS ADDRESS: STREET 1: 970 E 64TH ST CITY: CLEVELAND STATE: OH ZIP: 44103 BUSINESS PHONE: 2168818600 MAIL ADDRESS: STREET 1: 970 EAST 64TH STREET CITY: CLEVELAND STATE: OH ZIP: 44103 FORMER COMPANY: FORMER CONFORMED NAME: STEEL IMPROVEMENT & FORGE CO DATE OF NAME CHANGE: 19690520 10-Q 1 l06921ae10vq.txt SIFCO INDUSTRIES, INC. 10-Q/QTR END 3-31-04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _________________ to _____________________ Commission file number 1-5978 SIFCO INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Ohio 34-0553950 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 970 East 64th Street, Cleveland Ohio 44103 (Address of principal executive offices) (Zip Code)
(216) 881-8600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes __ No X The number of the Registrant's Common Shares outstanding at April 30, 2004 was 5,152,233. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2004 2003 2004 2003 -------- -------- -------- -------- Net sales ........................................ $ 22,794 $ 18,430 $ 43,633 $ 35,854 Operating expenses: Cost of goods sold ........................... 20,414 17,048 38,466 33,983 Selling, general and administrative expenses . 2,910 4,175 5,838 7,149 -------- -------- -------- -------- Total operating expenses ................ 23,324 21,223 44,304 41,132 -------- -------- -------- -------- Operating loss .................... (530) (2,793) (671) (5,278) Interest income .................................. (13) (13) (26) (45) Interest expense ................................. 198 217 403 414 Foreign currency exchange loss (gain), net ....... (36) 40 148 227 Other income, net ................................ (39) (39) (53) (64) -------- -------- -------- -------- Loss before income tax provision .. (640) (2,998) (1,143) (5,810) Income tax provision ............................. 26 16 33 30 -------- -------- -------- -------- Net loss .......................... $ (666) $ (3,014) $ (1,176) $ (5,840) ======== ======== ======== ======== Net loss per share (basic) ....................... $ (0.13) $ (0.57) $ (0.23) $ (1.11) Net loss per share (diluted) .................... $ (0.13) $ (0.57) $ (0.23) $ (1.11) Weighted-average number of common shares (basic) . 5,226 5,258 5,226 5,258 Weighted-average number of common shares (diluted) 5,226 5,258 5,226 5,258
See notes to unaudited consolidated condensed financial statements. 2 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, SEPTEMBER 30, 2004 2003 -------- -------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ............................................. $ 5,633 $ 4,524 Receivables, net ...................................................... 15,776 16,648 Inventories ........................................................... 9,353 9,184 Refundable income taxes ............................................... -- 23 Prepaid expenses and other current assets ............................. 1,058 473 Assets held for sale .................................................. 2,423 -- -------- -------- Total current assets ....................................... 34,243 30,852 Property, plant and equipment, net ........................................ 22,061 25,704 Other assets: Goodwill, net ......................................................... 2,574 2,574 Other assets .......................................................... 2,833 2,548 -------- -------- Total other assets ......................................... 5,407 5,122 -------- -------- Total assets ........................................ $ 61,711 $ 61,678 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt .................................. $ 1,451 $ 1,451 Accounts payable ...................................................... 6,624 6,491 Accrued liabilities ................................................... 7,394 6,471 -------- -------- Total current liabilities .................................. 15,469 14,413 Long-term debt, net of current maturities ................................. 8,952 9,033 Other long-term liabilities ............................................... 7,970 7,951 Shareholders' equity: Serial preferred shares, no par value, authorized 1,000 shares ........ -- -- Common shares, par value $1 per share, authorized 10,000 shares; issued 5,281 and 5,294 shares at March 31, 2004 and September 30, 2003, respectively; outstanding 5,226 shares ........................... 5,281 5,294 Additional paid-in capital ............................................ 6,602 6,661 Retained earnings ..................................................... 27,106 28,282 Accumulated other comprehensive loss .................................. (9,084) (9,247) Unearned compensation - restricted common shares ...................... (256) (309) Common shares held in treasury at cost, 56 and 68 shares at March 31, 2004 and September 30, 2003, respectively ........................ (329) (400) -------- -------- Total shareholders' equity ................................. 29,320 30,281 -------- -------- Total liabilities and shareholders' equity .......... $ 61,711 $ 61,678 ======== ========
See notes to unaudited consolidated condensed financial statements. 3 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED MARCH 31, 2004 2003 -------- -------- Cash flows from operating activities: Net loss ........................................................... $ (1,176) $ (5,840) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization ............................... 1,753 2,184 Gain on disposal of property, plant and equipment ........... 10 (2) Deferred income taxes ....................................... -- 22 Asset impairment charges .................................... -- 1,175 Changes in operating assets and liabilities: Receivables ............................................. 872 484 Inventories ............................................. (169) (389) Refundable income taxes ................................. 23 -- Prepaid expenses and other current assets ............... (585) (336) Other assets ............................................ (285) (50) Accounts payable ........................................ 133 1,197 Accrued liabilities ..................................... 799 (767) Other long-term liabilities ............................. 142 245 -------- -------- Net cash provided by (used for) operating activities . 1,517 (2,077) Cash flows from investing activities: Capital expenditures ........................................ (1,326) (1,106) Proceeds from disposal of property, plant and equipment ..... 50 15 Reimbursement of equipment expenditures ..................... 750 -- Other ....................................................... 147 60 -------- -------- Net cash used for investing activities ............... (379) (1,031) Cash flows from financing activities: Proceeds from revolving credit agreement .................... 27,169 12,458 Repayments of revolving credit agreement .................... (26,651) (11,814) Repayments of long-term debt ................................ (600) (600) Share transactions under employee stock plan ................ 53 71 -------- -------- Net cash provided by (used for) financing activities . (29) 115 Increase (decrease) in cash and cash equivalents ....................... 1,109 (2,993) Cash and cash equivalents at the beginning of the period ............... 4,524 7,583 -------- -------- Cash and cash equivalents at the end of the period ... $ 5,633 $ 4,590 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest ...................................... $ (352) $ (380) Cash recovered from income taxes, net ...................... 34 10
See notes to unaudited consolidated condensed financial statements. 4 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description of Business The unaudited consolidated condensed financial statements included herein include the accounts of SIFCO Industries, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented, have been included. These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's fiscal 2003 Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year. Certain prior period amounts have been reclassified in order to conform to current period classifications. B. Stock-Based Compensation The Company employs the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The following pro forma information regarding net income and earnings per share was determined as if the Company had accounted for its stock options under the fair value method prescribed by SFAS No. 123. For purposes of pro forma disclosure, the estimated fair value of the stock options is amortized over the options' vesting period. The pro forma information is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2004 2003 2004 2003 --------- --------- --------- --------- Net loss as reported ......................... $ (666) $ (3,014) $ (1,176) $ (5,840) Less: Stock-based compensation expense determined under fair value based method for all awards, net of related income tax effects 28 34 55 69 --------- --------- --------- --------- Pro forma net loss as if the fair value based method had been applied to all awards ........ $ (694) $ (3,048) $ (1,231) $ (5,909) ========= ========= ========= ========= Net loss per share: Basic - as reported ................... $ (0.13) $ (0.57) $ (0.23) $ (1.11) Basic - pro forma ..................... $ (0.13) $ (0.58) $ (0.24) $ (1.12) Diluted - as reported ................. $ (0.13) $ (0.57) $ (0.23) $ (1.11) Diluted - pro forma ................... $ (0.13) $ (0.58) $ (0.24) $ (1.12)
C. New Accounting Standards In December 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits". This standard revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans as required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This standard retains the disclosure requirements contained in SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which it replaces. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The provisions of SFAS No. 132 remain in effect until the provisions of SFAS No. 132 (revised 2003) are adopted. SFAS No. 132 (revised 2003) is generally effective for fiscal years ending after December 15, 2003. The 5 interim-period disclosures required by SFAS No. 132 (revised 2003) are effective for interim periods beginning after December 15, 2003. The adoption of this standard during the second quarter of fiscal year 2004 did not have an impact on the Company's financial position or results of operations. D. Revenue Recognition The Company recognizes revenue in accordance with the relevant portions of the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" and No. 104, "Revenue Recognition". Revenue is generally recognized when products are shipped or services are provided to customers. 2. INVENTORIES Inventories consist of:
MARCH 31, SEPTEMBER 30, 2004 2003 ------ ------ Raw materials and supplies $2,950 $2,537 Work-in-process ........... 3,215 3,028 Finished goods ............ 3,188 3,619 ------ ------ Total inventories ... $9,353 $9,184 ====== ======
Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method for 34% and 28% of the Company's inventories at March 31, 2004 and September 30, 2003, respectively. Cost is determined using the specific identification method for approximately 28% and 33% of the Company's inventories at March 31, 2004 and September 30, 2003, respectively. The first-in, first-out ("FIFO") method is used for the remainder of the inventories. If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $3,281 and $3,230 higher than reported at March 31, 2004 and September 30, 2003, respectively. 3. ASSETS HELD FOR SALE Assets held for sale at March 31, 2004 consist of the building and land of the Company's Turbine Component Services and Repair Group's Tampa, Florida facility, which ceased operations during fiscal 2003. These assets are recorded at amounts not in excess of what the Company currently expects, based on management's estimates, to receive upon sale, less cost of disposal. 4. COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS Total comprehensive loss is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, --------- --------- 2004 2003 2004 2003 ------- ------- ------- ------- Net loss ......................................... $ (666) $(3,014) $(1,176) $(5,840) Foreign currency translation adjustment .......... 32 3 163 67 Unrealized gain on interest rate swap agreement, net of income tax provision of $12 and $22 in fiscal 2003 ................................ 46 24 124 43 Currency exchange contract adjustment ............ (176) (500) (124) (340) ------- ------- ------- ------- Total comprehensive loss .............. $ (764) $(3,487) $(1,013) $(6,070) ======= ======= ======= =======
6 The components of accumulated other comprehensive loss are as follows:
MARCH 31, SEPTEMBER 30, 2004 2003 ------- ------- Foreign currency translation adjustment ............. $(6,682) $(6,845) Interest rate swap agreement adjustment ............. (265) (389) Currency exchange contract adjustment ............... (124) -- Minimum pension liability adjustment ................ (2,013) (2,013) ------- ------- Total accumulated other comprehensive loss $(9,084) $(9,247) ======= =======
5. BUSINESS SEGMENTS The Company identifies reportable segments based upon distinct products manufactured and services provided. The Turbine Component Services and Repair Group ("Repair Group") consists primarily of the repair and remanufacture of aerospace and industrial turbine engine components. The Repair Group is also involved in precision component machining for aerospace applications. The Aerospace Component Manufacturing Group consists of the production, heat treatment and some machining of forgings in various alloys utilizing a variety of processes for application in the aerospace industry. The Metal Finishing Group is a provider of specialized selective electrochemical metal finishing processes and services used to apply metal coatings to a selective area of a component. The Company's reportable segments are separately managed. Segment information is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2004 2003 2004 2003 -------- -------- -------- -------- Net sales: Turbine Component Services and Repair Group .......... $ 12,278 $ 9,511 $ 24,002 $ 17,960 Aerospace Component Manufacturing Group .............. 7,862 6,174 14,318 13,179 Metal Finishing Group ................................ 2,654 2,745 5,313 4,715 -------- -------- -------- -------- Consolidated net sales ....................... $ 22,794 $ 18,430 $ 43,633 $ 35,854 ======== ======== ======== ======== Operating income (loss): Turbine Component Services and Repair Group .......... $ (683) $ (2,497) $ (1,137) $ (4,358) Aerospace Component Manufacturing Group .............. 603 (288) 967 (389) Metal Finishing Group ................................ 189 417 417 285 Corporate unallocated expenses ....................... (639) (425) (918) (816) -------- -------- -------- -------- Consolidated operating loss .................. (530) (2,793) (671) (5,278) Interest expense, net .................................. 185 204 377 369 Foreign currency exchange loss (gain), net ............. (36) 40 148 227 Other income, net ...................................... (39) (39) (53) (64) -------- -------- -------- -------- Consolidated loss before income tax provision $ (640) $ (2,998) $ (1,143) $ (5,810) ======== ======== ======== ========
The Company's net goodwill of $2,574 at March 31, 2004 and September 30, 2003 is allocated to its Metal Finishing Group. 6. CONSOLIDATION OF OPERATIONS During fiscal 2003, as a result of the continuing downturn in the commercial aviation industry and the resulting reduction in demand for third party aerospace turbine engine component repair services, such as those provided by the Company, the Turbine Component Services and Repair Group ("Repair Group") decided to optimize its component repair capability through consolidation of operations. The Company expects to complete these actions by September 30, 2004. As a result of this decision, the Repair Group incurred in fiscal 2003, $645 of severance and other employee benefit charges related to 60 personnel As of March 31, 2004, payments totaling $645 have been made for these expenses and all affected personnel have been terminated. 7 The following table summarizes the remaining liabilities for qualified exit costs at March 31, 2004 and activity for the six months then ended:
BALANCE TOTAL 2004 2004 BALANCE SEPTEMBER 30, 2004 CASH NON-CASH MARCH 31, 2003 CHARGES PAYMENTS CHARGES 2004 ---- ------- -------- ------- ---- Severance and other employee benefits $37 $ -- $37 $ -- $ -- === ===== === ===== =====
7. LONG-TERM DEBT In May 2004, the Company entered into an agreement with its lending bank to amend certain provisions of its credit agreements. The amendment extends the maturity date of the Company's $6,000 revolving credit agreement to September 30, 2005. The amendment waives the Company's minimum tangible net worth level covenant for the period ended March 31, 2004 and modifies the minimum tangible net worth level covenant. 8. RETIREMENT BENEFIT PLANS The Company and certain of its subsidiaries sponsor defined benefit pension plans covering most of its employees. The components of net periodic benefit cost of the Company's defined benefit plans are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, --------- --------- 2004 2003 2004 2003 ----- ----- ----- ----- Service cost ....................... $ 154 $ 233 $ 306 $ 463 Interest cost ...................... 348 347 694 691 Expected return on plan assets ..... (384) (366) (766) (730) Amortization of transition asset ... (3) (3) (5) (5) Amortization of prior service cost . 33 40 66 80 Amortization of net (gain) loss .... 5 (37) 9 (74) ----- ----- ----- ----- Net periodic benefit cost . $ 153 $ 214 $ 304 $ 425 ===== ===== ===== =====
Through March 31, 2004, the Company has made $640 of contributions in fiscal 2004 to its defined benefit pension plans. The Company anticipates contributing an additional $633 to fund its defined benefit pension plans during the balance of fiscal 2004, resulting in total projected contributions of $1,273 in fiscal 2004. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) future business environment, including capital and consumer spending; (2) competitive factors, including the ability to replace business which may be lost due to increased direct involvement by the turbine engine manufacturers in turbine component service and repair markets; (3) successful procurement of certain repair materials and new repair process licenses from turbine engine manufacturers and/or the Federal Aviation Administration; (4) fluctuating foreign currency (primarily the euro) exchange rates; (5) metals and commodities price increases and the Company's ability to recover such price increases; (6) successful development and market introductions of new products, including an advanced coating technology and the continued development of heavy industrial turbine repair processes; (7) regressive pricing pressures on the Company's products and services, with productivity improvements as the primary means to maintain margins; (8) success with the further development of strategic alliances with certain turbine engine manufacturers for turbine component repair services; (9) the impact on business conditions, and on the aerospace industry in particular, of global terrorism threat; (10) successful replacement of declining demand for repair services for turboprop engine components with component repair services for small turbofan engines utilized in the business and regional aircraft markets; (11) continued reliance on several major customers for revenues; (12) the Company's ability to continue to have access to its revolving credit facility, including the Company's ability to (i) continue to comply with the 8 terms of its credit agreements, including financial covenants, (ii) continue to enter into amendments to its credit agreement containing financial covenants, which it and its bank lender find mutually acceptable, or (iii) continue to obtain waivers from its bank lender with respect to its compliance with the covenants contained in its credit agreement; (13) pension plan actuarial assumptions and future contributions; (14) net realizable value of assets held for sale; and (15) stable governments, business conditions, laws, regulations and taxes in economies where business is conducted. SIFCO Industries, Inc. and its subsidiaries engage in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include forging, heat-treating, coating, welding, machining and selective electrochemical metal finishing. The products include forgings, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines, and selective electrochemical metal finishing solutions and equipment. A. RESULTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2004 COMPARED WITH SIX MONTHS ENDED MARCH 31, 2003 Net sales in the first six months of fiscal 2004 increased 21.7% to $43.6 million, compared with $35.9 million in the comparable period in fiscal 2003. Net loss in the first six months of fiscal 2004 was $1.2 million, compared with a net loss of $5.8 million in the comparable period in fiscal 2003. Turbine Component Services and Repair Group ("Repair Group") Net sales in the first six months of fiscal 2004 increased 33.6% to $24.0 million, compared with $18.0 million in the comparable fiscal 2003 period. Component manufacturing and repair net sales increased $4.2 million to $18.9 million in the first six months of fiscal 2004, compared with $14.7 million in the comparable fiscal 2003 period. Demand for precision component machining and component repairs for small and large aerospace turbine engines, as well as industrial turbine engines, increased in the first six months of fiscal 2004, compared with the comparable fiscal 2003 period. This demand reflects an increase in component repairs for newer model large aerospace turbine engines offset by reduced demand for component repairs for older model large aerospace turbine engines. Net sales associated with the demand for replacement parts, which often complement component repair services provided to customers, increased $1.8 million in the first six months of fiscal 2004 to $5.1 million, compared with $3.3 million in the comparable fiscal 2003 period. During the first six months of fiscal 2004, the Repair Group's selling, general and administrative expenses decreased $1.2 million to $2.5 million, or 10.3% of net sales, from $3.7 million, or 20.5% of net sales, in the comparable fiscal 2003 period. Included in the $3.7 million of selling, general and administrative expenses in the first six months of fiscal 2003 were charges aggregating $1.2 million related to equipment impairment and $0.2 million of severance charges related to the further consolidation of the Repair Group's operations during fiscal 2003. The remaining selling, general and administrative expenses in the first six months of fiscal 2003 were $2.3 million, or 13.0% of net sales. The Repair Group's operating loss in the first six months of fiscal 2004 decreased $3.2 million to $1.1 million from $4.4 million in the comparable fiscal 2003 period. Included in the operating loss in the first six months of fiscal 2003 were charges aggregating $1.2 million related to the impairment of equipment and $0.2 million of severance charges. The Repair Group's operating loss before the $1.4 million of aforementioned impairment and severance charges during the first six months of fiscal 2003 was $3.0 million. The reduced operating loss before the aforementioned impairment and severance charges was primarily due to the positive impact on margins of increased sales volumes for both component manufacturing and repair services and replacement parts. During fiscal 2003 and continuing into the first six months of fiscal 2004, the euro strengthened against the U.S. dollar. The Repair Group's non-U.S. operation has most of its sales and denominated in U.S. dollars while a significant portion of its operating costs are denominated in euros. Therefore, as the euro strengthens, costs denominated in euros are negatively impacted. During the first six months of fiscal 2003, the Repair Group hedged much of its exposure to the strengthening euro thereby mitigating the negative impact on its operating results in that period. During the first six months of fiscal 2004, the Company did not hedge all of its exposure to the strengthening euro and, therefore, the impact on the Repair Group's operating results in the first six months of fiscal 2004 was higher operating costs of approximately $2.3 million related to its non-U.S. operations, when compared to the comparable fiscal 2003 period. The Repair Group's backlog as of March 31, 2004, was $7.5 million, compared with $8.9 million as of September 30, 2003. At March 31, 2004, $6.0 million of the total backlog was scheduled for delivery over the next twelve months and $1.4 9 million was on hold. All orders are subject to modification or cancellation by the customer with limited charges. The Repair Group believes that the backlog may not be indicative of actual sales for any succeeding period. Aerospace Component Manufacturing Group ("ACM Group") Net sales of the ACM Group in the first six months of fiscal 2004 increased 8.6% to $14.3 million, compared with $13.2 million in the first six months of fiscal 2003. For purposes of the following discussion, the ACM Group considers aircraft that can accommodate less than 100 passengers to be small aircraft, and those that can accommodate 100 or more passengers to be large aircraft. Net sales of airframe components for small aircraft increased $0.8 million to $6.7 million in the first six months of fiscal 2004, compared with $5.9 million in the same period in fiscal 2003. Net sales of turbine engine components for large aircraft increased $0.1 million to $0.5 million in the first six months of fiscal 2004, compared with $0.4 million in the comparable period in fiscal 2003. Net sales of turbine engine components for small aircraft, which consist primarily of net sales to Rolls-Royce Corporation of turbine engine components for small aircraft such as the AE series latest generation turbine engines for business and regional jets, as well as military transport and surveillance aircraft, were $5.3 million in the first six months of both fiscal 2004 and 2003. Net sales of airframe components for large aircraft were $1.0 million in the first six months of both fiscal 2004 and 2003. Other product and non-product sales were $0.8 million and $0.6 million in the first six months of fiscal 2004 and 2003, respectively. The ACM Group's airframe and turbine engine component net sales have both military and commercial aircraft applications. Net sales of airframe and turbine engine components solely for military applications increased $1.1 million to $6.7 million in the first six months of fiscal 2004, compared with $5.6 million in the comparable period in fiscal 2003. Selling, general and administrative expenses in the first six months of fiscal 2004 were $0.8 million, or 5.9% of net sales, compared with $1.1 million, or 8.4% of net sales, in the first six months of fiscal 2003. Selling, general and administrative expenses in the first six months of fiscal 2004 benefited from (i) a $0.2 million reduction in the ACM Group's provision for bad debts and (ii) a $0.2 million reduction in compensation and employee benefits expenses due to open positions, compared with the same period in fiscal 2003. The ACM Group's operating income in the first six months of fiscal 2004 was $1.0 million, compared with an operating loss of $0.4 million in the first six months of fiscal 2003. Operating results were favorably impacted in the first six months of fiscal 2004 by a $0.5 million decrease in material cost as a result of product mix consisting of a greater percentage of products sold containing lower cost materials, compared with the comparable period in fiscal 2003. Operating results in the first six months of fiscal 2004 when compared with the comparable period in fiscal 2003 also benefited by (i) $0.2 million due to improved utilization of labor; (ii) $0.1 million due to a decrease in manufacturing supplies and repair expenses; and (iii) $0.2 million due to a decrease in outside services expense. Operating results in the first six months of fiscal 2004 were negatively impacted by $0.1 million of higher energy costs, compared with the same period in fiscal 2003 Operating results were impacted by fluctuations in selling, general and administrative expenses as previously discussed. The ACM Group's backlog as of March 31, 2004 was $22.8 million, compared with $21.4 million as of September 30, 2003. At March 31, 2004, $20.6 million of the total backlog was scheduled for delivery over the next twelve months and $0.1 million was on hold. All orders are subject to modification or cancellation by the customer with limited charges. The ACM Group believes that the backlog may not be indicative of actual sales for any succeeding period. Metal Finishing Group Net sales of the Metal Finishing Group increased 12.7% to $5.3 million in the first six months of fiscal 2004, compared with net sales of $4.7 million in the first six months of fiscal 2003. In the first six months of fiscal 2004, product net sales, consisting of selective electrochemical finishing equipment and solutions, increased 8.4% to $2.9 million, compared with $2.7 million in the same period in fiscal 2003. In the first six months of fiscal 2004, customized selective electrochemical finishing contract service net sales increased 17.3% to $2.2 million, compared with $1.9 million in the comparable fiscal 2003 period. Net sales to customers in the oil and gas exploration industry increased $0.5 million, while net sales to customers in the electronics industry increased $0.2 million in the first six months of fiscal 2004, compared with the same period in fiscal 2003. These net sales gains were partially offset in the first six months of fiscal 2004 by a decrease of $0.1 million in net sales to customers in the power generation industry, compared with the same period in fiscal 2003. Selling, general and administrative expenses in the first six months of fiscal 2004 were $1.6 million, or 30.3% of net sales, compared with $1.5 million, or 32.8% of net sales in the first six months of fiscal 2003. The Metal Finishing Group's 10 operating income in the first six months of fiscal 2004 was $0.4 million, compared with $0.3 million in the first six months of fiscal 2003. Operating income in the first six months of fiscal 2004 benefited from the interplay between higher net sales in relation to fixed overhead, selling, general and administrative expenses. The increase in operating income was partially offset in the first six months of fiscal 2004 by higher costs associated with the start up of a new customer-dedicated contract service operation at an existing service shop. The Metal Finishing Group essentially had no backlog at March 31, 2004. Corporate Unallocated Expenses Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate expenses, were $0.9 million in the first six months of fiscal 2004, compared with $0.8 million in the same period in fiscal 2003. In the first six months of fiscal 2004, corporate unallocated expenses were impacted primarily by a $0.2 million increase in legal and professional expenses and by a $0.1 million decrease in corporate salary and benefits expenses. Other/General Interest expense was $0.4 million in both the first six months of fiscal 2004 and 2003. The favorable impact of a lower weighted average term note outstanding balance of $5.4 million in the first six months of fiscal 2004, compared with $6.6 million in the same period in fiscal 2003, was offset by a higher weighted average interest rate payable under the term note in the first six months of fiscal 2004, compared with the same period in fiscal 2003. The weighted average revolving credit agreement outstanding balance in the first six months of fiscal 2004 was $2.5 million, compared with $2.1 million in the same period in fiscal 2003. The weighted average interest rate payable under the revolving credit agreement was 4.5% in both the first six months of fiscal 2004 and 2003. The weighted average interest rate payable under the industrial development variable rate demand revenue bond was 1.16% in the first six months of fiscal 2004, compared with 1.5% in the same period in fiscal 2003. The weighted average balance outstanding under the industrial development variable rate demand revenue bond was $3.0 million in the first six months of fiscal 2004, compared with $3.2 million in the same period in fiscal 2003. Currency exchange loss was $0.1 million in the first six months of fiscal 2004, compared with $0.2 million in the comparable period in fiscal 2003. This loss is the result of currency exchange rate fluctuations, resulting primarily from the impact of the continued strengthening of the euro in relation to the U.S. dollar, on the Company's monetary assets and liabilities that are not denominated in U.S. dollars. In the first six months of fiscal 2004 and 2003, the income tax benefit related to the Company's U.S. and non-U.S. subsidiary losses was offset by a valuation allowance based upon an assessment of the Company's ability to realize such benefits. In assessing the Company's ability to realize its net deferred tax assets, management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Future reversal of the valuation allowance will be achieved either when the tax benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future taxable income. THREE MONTHS ENDED MARCH 31, 2004 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2003 Net sales in the second quarter of fiscal 2004 increased 23.7% to $22.8 million, compared with $18.4 million in the comparable period in fiscal 2003. Net loss in the second quarter of fiscal 2004 was $0.7 million, compared with $3.0 million in the second quarter of fiscal 2003. Turbine Component Services and Repair Group ("Repair Group") Net sales in the second quarter of fiscal 2004 increased 29.1% to $12.3 million, compared with $9.5 million in the comparable fiscal 2003 period. Component manufacturing and repair net sales increased $1.8 million to $9.5 million in the second quarter of fiscal 2004, compared with $7.7 million in the comparable fiscal 2003 period. Demand for precision component machining and component repairs for small and large aerospace turbine engines, as well as industrial turbine engines, increased in the second quarter of fiscal 2004, compared with the comparable fiscal 2003 period. This demand reflects an increase in component repairs for newer model large aerospace turbine engines offset by reduced demand for component repairs for older model large aerospace turbine engines. Net sales associated with the demand for replacement parts, which often complement component repair services provided to customers, increased $1.0 million in the second quarter of fiscal 2004 to $2.8 million, compared with $1.8 million in the comparable fiscal 2003 period. 11 During the second quarter of fiscal 2004, the Repair Group's selling, general and administrative expenses decreased $1.4 million to $1.1 million, or 9.3% of net sales, from $2.5 million, or 26.3% of net sales, in the comparable fiscal 2003 period. Included in the $2.5 million of selling, general and administrative expenses in the second quarter of fiscal 2003 were charges aggregating $1.2 million related to equipment impairment and $0.2 million of severance charges related to the further consolidation of the Repair Group's operations during fiscal 2003. The remaining selling, general and administrative expenses in the second quarter of fiscal 2003 were $1.2 million, or 12.1% of net sales. The Repair Group's operating loss in the second quarter of fiscal 2004 decreased $1.8 million to $0.7 million from $2.5 million in the comparable fiscal 2003 period. Included in the operating loss in the second quarter of fiscal 2003 were charges aggregating $1.2 million related to the impairment of equipment and $0.2 million of severance charges. The Repair Group's operating loss before the $1.4 million of aforementioned impairment and severance charges during the second quarter of fiscal 2003 was $1.1 million. The reduced operating loss before the aforementioned impairment and severance charges was primarily due to the positive impact on margins of increased sales volumes for both component manufacturing and repair services and replacement parts. During fiscal 2003 and continuing into the first six months of fiscal 2004, the euro strengthened against the U.S. dollar. The Repair Group's non-U.S. operation has most of its sales denominated in U.S. dollars while a significant portion of its operating costs are denominated in euros. Therefore, as the euro strengthens, costs denominated in euros are negatively impacted. During the second quarter of fiscal 2003, the Repair Group hedged much of its exposure to the strengthening euro thereby mitigating the negative impact on its operating results in that period. During the second quarter of fiscal 2004, the Company hedged most of its exposure to the strengthening euro, but did so at rates much less attractive than in the same fiscal 2003 period and, therefore, the impact on the Repair Group's operating results in the second quarter of fiscal 2004 was higher operating costs of approximately $1.3 million related to its non-U.S. operations, when compared to the comparable fiscal 2003 period. Aerospace Component Manufacturing Group ("ACM Group") Net sales of the ACM Group in the second quarter of fiscal 2004 increased 27.3% to $7.9 million, compared with $6.2 million in the second quarter of fiscal 2003. For purposes of the following discussion, the ACM Group considers aircraft that can accommodate less than 100 passengers to be small aircraft, and those that can accommodate 100 or more passengers to be large aircraft. Net sales of turbine engine components for small aircraft, which consist primarily of net sales to Rolls-Royce Corporation of turbine engine components for small aircraft such as the AE series latest generation turbine engines for business and regional jets, as well as military transport and surveillance aircraft, increased $0.8 million to $3.4 million in the second quarter of fiscal 2004, compared with $2.6 million in the comparable period in fiscal 2003. Net sales of airframe components for small aircraft increased $0.5 million to $3.3 million in the second quarter of fiscal 2004, compared with $2.8 million in the same period in fiscal 2003. Net sales of turbine engine components for large aircraft increased $0.1 million to $0.3 million in the second quarter of fiscal 2004, compared with $0.2 million in the comparable period in fiscal 2003. Net sales of airframe components for large aircraft were $0.5 million in the second quarter of fiscal 2004, compared with $0.4 million in the same period in fiscal 2003. Other product and non-product sales were $0.4 million and $0.1 million in the second quarter of fiscal 2004 and 2003, respectively. The ACM Group's airframe and turbine engine component net sales have both military and commercial aircraft applications. Net sales of airframe and turbine engine components solely for military applications increased $0.9 million to $3.5 million in the second quarter of fiscal 2004, compared with $2.6 million in the comparable period in fiscal 2003. Selling, general and administrative expenses in the second quarter of fiscal 2004 were $0.4 million, or 4.5% of net sales, compared with $0.5 million, or 7.7% of net sales, in the second quarter of fiscal 2003. Selling, general and administrative expenses in the second quarter of fiscal 2004 benefited from (i) a $0.1 million reduction in the ACM Group's provision for bad debts and (ii) a $0.1 million reduction in compensation and employee benefits expenses due to open positions, compared with the same period in fiscal 2003. The ACM Group's operating income in the second quarter of fiscal 2004 was $0.6 million, compared with an operating loss of $0.3 million in the second quarter of fiscal 2003. Operating results were favorably impacted in the second quarter of fiscal 2004 by a $0.3 million decrease in material cost as a result of product mix consisting of a greater percentage of products containing lower cost materials, compared with the comparable period in fiscal 2003. Operating results in the second quarter of fiscal 2004 when compared with the comparable period in fiscal 2003 also benefited by (i) $0.2 million due to improved utilization of labor; (ii) $0.2 million due to a decrease in outside services expense. Operating results in the second quarter of 12 fiscal 2004 were negatively impacted by $0.1 million of higher energy costs, compared with the same period in fiscal 2003. Operating results were impacted by fluctuations in selling, general and administrative expenses as previously discussed. Metal Finishing Group Net sales of the Metal Finishing Group were $2.7 million in both the second quarters of fiscal 2004 and 2003. Product net sales, consisting of selective electrochemical finishing equipment and solutions, were $1.6 million in both the second quarters of fiscal 2004 and 2003. In the second quarter of fiscal 2004, customized selective electrochemical finishing contract service net sales decreased 7.8% to $1.0 million, compared with $1.1 million in the comparable fiscal 2003 period. Net sales to customers in the oil and gas exploration industry increased $0.3 million in the second quarter of fiscal 2004, compared with the same period in fiscal 2003. These net sales gains in the second quarter of fiscal 2004 were offset by a decrease of $0.2 million in net sales to customers in the automotive industry and a decrease of $0.1 million in net sales to customers in the aerospace industry, compared with the same period in fiscal 2003. Selling, general and administrative expenses were $0.8 million in both the second quarters of fiscal 2004 and 2003, or 29.1% and 28.3% of net sales, respectively. The Metal Finishing Group's operating income in the second quarter of fiscal 2004 was $0.2 million, compared with $0.4 million in the second quarter of fiscal 2003. Operating results in the second quarter of fiscal 2004 were negatively impacted by higher costs associated with the start up of a new customer-dedicated contract service operation at an existing service shop. Corporate Unallocated Expenses Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate expenses, were $0.6 million in the second quarter of fiscal 2004, compared with $0.4 million in the same period in fiscal 2003. In the second quarter of fiscal 2004, corporate unallocated expenses were impacted primarily by a $0.3 million increase in legal and professional expenses. Other/General Interest expense was $0.2 million in both the second quarters of fiscal 2004 and 2003. The favorable impact of a lower weighted average term note outstanding balance of $5.2 million in the second quarter of fiscal 2004, compared with $6.4 million in the same period in fiscal 2003, was offset by a higher weighted average interest rate payable under the term note in the second quarter of fiscal 2004, compared with the same period in fiscal 2003. The weighted average revolving credit agreement outstanding balance in the second quarter of fiscal 2004 was $2.7 million, compared with $1.7 million in the same period in fiscal 2003. The weighted average interest rate payable under the revolving credit agreement was 4.5% in both of the second quarters of fiscal 2004 and 2003. The weighted average interest rate payable under the industrial development variable rate demand revenue bond was 1.12% in the second quarter of fiscal 2004, compared with 1.27% in the same period in fiscal 2003. The weighted average balance outstanding under the industrial development variable rate demand revenue bond was $3.0 million in the second quarter of fiscal 2004, compared with $3.2 million in the same period in fiscal 2003. Currency exchange gain was $0.04 million in the second quarter of fiscal 2004, compared with a currency exchange loss of $0.04 million in the comparable period in fiscal 2003. The fiscal 2004 second quarter currency exchange gain is the result of currency exchange rate fluctuations, resulting primarily from the impact of a nominal improvement at the end of the second quarter of fiscal 2004 in the value of the U.S. dollar in relation to the euro on the Company's monetary assets and liabilities that are not denominated in U.S. dollars. In the second quarters of fiscal 2004 and 2003, the income tax benefit related to the Company's U.S. and non-U.S. subsidiary losses was offset by a valuation allowance based upon an assessment of the Company's ability to realize such benefits. In assessing the Company's ability to realize its net deferred tax assets, management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Future reversal of the valuation allowance will be achieved either when the tax benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future taxable income. B. Liquidity and Capital Resources Cash and cash equivalents increased to $5.6 million at March 31, 2004 from $4.5 million at September 30, 2003. At present, essentially all of the Company's cash and cash equivalents are in the possession of its non-U.S. subsidiaries and relate to undistributed earnings. Distributions from the Company's non-U.S. subsidiaries to the Company may be subject to statutory restrictions, adverse tax consequences or other limitations. 13 The Company's operating activities generated $1.5 million of cash in the first six months of fiscal 2004. The increase in cash provided by operations is primarily attributable to (i) a $0.9 million decrease in accounts receivable due primarily to improved collections and (ii) a $0.8 million increase in accrued liabilities attributable to the timing of increases in compensation, property tax and royalty accruals. These increases in cash provided by operations were offset in part by a $0.6 million increase in prepaid expenses and other current assets due primarily to the payment of certain insurance premiums. During the first six months of fiscal 2004, the Company received a $0.7 million reimbursement for certain capital expenditures that were previously made in anticipation of a proposed joint venture that did not materialize. Capital expenditures were $1.3 million in the first six months of fiscal 2004. Capital expenditures in the first six months of fiscal 2004 consist of $0.5 million by the ACM Group, $0.2 million by the Metal Finishing Group and $0.6 million by the Repair Group. Capital expenditures are expected to (i) provide increased range of manufacturing capabilities; (ii) automate certain machining operations; and (iii) enhance the Company's service and repair capabilities. At March 31, 2004, the Company had outstanding commitments for capital expenditures totaling $1.0 million. The Company anticipates that total fiscal 2004 capital expenditures will approximate $3.0 million. At March 31, 2004, the Company has a 15-year industrial development variable rate revenue bond outstanding, which was issued with an original face amount of $4.1 million and was used to expand the Repair Group's Tampa, Florida facility. The industrial development variable rate revenue bond requires annual principal payments ranging from $0.2 million in fiscal 2004 to $0.4 million in fiscal 2013. The interest rate is reset weekly based on prevailing tax-exempt money market rates. The interest rate as of March 31, 2004 was 1.16%. The outstanding balance of the industrial development variable rate revenue bond at March 31, 2004 was $3.0 million. The bank's commitment fee on a standby letter of credit that collateralizes the industrial development variable rate revenue bond is 2.75% of the outstanding balance. Operations at the Repair Group's Tampa, Florida facility ceased at the end of fiscal 2003. At March 31, 2004, the facility is held for sale. The sale of the facility may result in one of the following occurring: (i) repayment of the industrial development variable rate revenue bond; (ii) continued servicing of the industrial development variable rate revenue bond by the Company; or (iii) assumption of the industrial development variable rate revenue bond by the buyer of the facility. The ultimate use of the facility determines, in part, which options may be available. At March 31, 2004, the Company has a term note that is repayable in quarterly installments of $0.3 million through February 2005, with the remaining balance of $3.9 million due May 1, 2005. The term note has a variable interest rate, which, after giving effect to an interest rate swap agreement, becomes an effective fixed rate term note, subject to adjustment based upon the level of certain financial ratios. The effective fixed interest rate at March 31, 2004 was 9.49%. The outstanding balance of the term note as of March 31, 2004 was $5.1 million. At March 31, 2004, the Company had a $6.0 million revolving credit agreement, subject to sufficiency of collateral, that expires on March 31, 2005 and bears interest at the bank's base rate plus 0.50%. The interest rate was 4.5% at March 31, 2004. A 0.375% commitment fee is incurred on the unused balance of the revolving credit agreement. At March 31, 2004, the outstanding balance under the revolving credit agreement was $2.3 million and the Company had $3.5 million available under its revolving credit agreement. All of the Company's long-term debt is secured by substantially all of the Company's assets located in the U.S., a guarantee by its U.S. subsidiaries and a pledge of 65% of the Company's ownership interest in its non-U.S. subsidiaries. Under its credit agreements, the Company is subject to certain customary covenants. These include, without limitations, covenants (as defined) that limit the amount of capital expenditures and require maintenance of a minimum tangible net worth level and minimum adjusted fixed charge to EBITDA coverage ratio. In May 2004, the Company entered into an agreement with its bank to amend certain provisions of its credit agreements. The amendment extends the maturity date of the Company's $6.0 million revolving credit agreement to September 30, 2005. The amendment waives the Company's minimum tangible net worth level covenant for the period ended March 31, 2004 and modifies the minimum tangible net worth level covenant. Taking into consideration the impact of this amendment, the Company was in compliance with all applicable covenants at March 31, 2004. The Company believes that cash flow from its operations together with existing cash reserves and funds available under its revolving credit agreement will be sufficient to meet its working capital requirements through the end of fiscal 2004. However, no assurances can be given as to the sufficiency of the Company's working capital to support the Company's operations. If the existing cash reserves, cash flow from operations and funds available under the revolving credit agreement 14 are insufficient; if working capital requirements are greater than currently estimated; and/or if the Company is unable to satisfy the covenants set forth in its credit agreements, the Company may be required to adopt one or more alternatives, such as reducing or delaying capital expenditures, restructuring indebtedness, selling assets or operations, or issuing additional shares of capital stock in the Company. There can be no assurances that any of these actions could be accomplished, or if so, on terms favorable to the Company, or that they would enable the Company to continue to satisfy its working capital requirements. C. Recently Issued Accounting Standards In December 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits". This standard revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans as required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This standard retains the disclosure requirements contained in SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which it replaces. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The provisions of SFAS No. 132 remain in effect until the provisions of SFAS No. 132 (revised 2003) are adopted. SFAS No. 132 (revised 2003) is generally effective for fiscal years ending after December 15, 2003. The interim-period disclosures required by SFAS No. 132 (revised 2003) are effective for interim periods beginning after December 15, 2003. The adoption of this standard during the second quarter of fiscal year 2004 did not have an impact on the Company's financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the ordinary course of business, the Company is subject to foreign currency and interest risk. The risks primarily relate to the sale of the Company's products and services in transactions denominated in non-U.S. dollar currencies (primarily the euro and British pound); the payment in local currency of wages and other costs related to the Company's non-U.S. operations (primarily the euro); and changes in interest rates on the Company's long-term debt obligations. The Company does not hold or issue financial instruments for trading purposes. The Company believes that inflation has not materially affected its results of operations during the first six months of fiscal 2004, and does not expect inflation to be a significant factor in the balance of fiscal 2004. A. Foreign Currency Risk The U.S. dollar is the functional currency for all of the Company's U.S. operations and its Irish subsidiary. For the Company's other non-U.S. subsidiaries, the functional currency is the local currency. Assets and liabilities are translated into U.S. dollars at the rate of exchange at the end of the period and revenues and expenses are translated using average rates of exchange. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in earnings. During the first six months of fiscal 2004, the euro continued to be strong in relation to the U.S. dollar. The Repair Group's non-U.S. operation has a significant portion of its operating costs denominated in euros, and therefore, as the euro strengthens, such costs are negatively impacted. Historically, the Company has been able to mitigate the impact of foreign currency risk by means of hedging such risk through the use of foreign currency exchange contracts. However, such risk is mitigated only for the periods for which the Company has foreign currency exchange contracts in effect, and only to the extent of the U.S. dollar amounts of such contracts. During the first six months of fiscal 2004, the Company did not hedge all of its exposure to the euro. During the second quarter of fiscal 2004, the Company entered into several currency exchange contracts at prevailing market rates. At March 31, 2004, the Company had forward exchange contracts outstanding for durations of up to six months to purchase euros aggregating U.S. $9.4 million at euro to U.S. dollar exchange rates ranging from 1.2196 to 1.2633. A ten percent appreciation or depreciation of the value of the U.S. dollar relative to the currencies, in which the forward exchange contracts outstanding at March 31, 2004 are denominated, would result in a $0.9 million decline or increase, respectively, in the value of the forward exchange contracts. Factors that could impact the effectiveness of the Company's hedging efforts include accuracy of expenditure estimates, volatility of currency markets and the cost and availability of hedging instruments. The Company will continue to evaluate its foreign currency risk, if any, and the effectiveness of using similar hedges in the future to mitigate such risk. 15 At March 31, 2004, the Company's assets and liabilities denominated in the British pound and the euro were as follows (amounts in thousands):
BRITISH POUND EURO ------------- ---- Cash and cash equivalents .......................... 483 274 Accounts receivable ................................ 293 293 Accounts payable and accrued liabilities ........... 163 1,573
B. Interest Rate Risk The Company's primary interest rate risk exposure results from the variable interest rate mechanisms associated with the Company's long-term debt consisting of a term note payable to the Company's bank, a revolving credit agreement and industrial development variable rate demand revenue bonds. These interest rate exposures are managed in part by an interest rate swap agreement to fix the interest rate of the term note payable to the Company's bank. If interest rates were to increase 100 basis points (1%) from March 31, 2004 rates, and assuming no changes in the amounts outstanding under the revolving credit agreement and industrial development variable rate demand revenue bond, the additional annual interest expense to the Company would be approximately $0.1 million. ITEM 4. CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chairman and Chief Executive Officer of the Company and Chief Financial Officer of the Company, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based upon that evaluation, the Chairman and Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. There has been no significant change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or that is reasonably likely to materially affect our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No change. ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS No change. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders held on January 27, 2004, there were a total of 4,728,451 shareholders voting either in person or by proxy. The shareholders: A. Elected six directors to the Company's Board of Directors, Jeffrey P. Gotschall, Michael S. Lipscomb, P. Charles Miller, Jr., Alayne L. Reitman, Hudson D. Smith and J. Douglas Whelan, to serve on the Board of Directors until the Company's Annual Meeting in 2005. 16 The results of the voting for directors were as follows:
NAME VOTES FOR VOTES WITHHELD ---- --------- -------------- Jeffrey P. Gotschall 4,642,956 85,495 Michael S. Lipscomb 4,679,894 48,557 P. Charles Miller, Jr. 4,681,394 47,057 Alayne L. Reitman 4,681,294 47,157 Hudson D. Smith 4,680,380 48,071 J. Douglas Whelan 4,681,394 47,057
B. Ratified Grant Thornton LLP as the independent auditors of the Company to audit the books and accounts of the Company for the fiscal year ending September 30, 2004. There were 4,674,288 votes cast for the appointment, 17,022 votes cast against the appointment and 37,141 abstentions. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed with this report or are incorporated hereby reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934 (Asterisk denotes exhibits filed with this report.).
Exhibit No. Description ----------- ----------- 3.1 Third Amended Articles of Incorporation of SIFCO Industries, Inc., filed as Exhibit 3(a) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 3.2 SIFCO Industries, Inc. Amended and Restated Code of Regulations dated January 29, 2002, filed as Exhibit 3(b) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.1 Amended and Restated Reimbursement Agreement dated April 30, 2002 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4(a) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.2 Amended and Restated Credit Agreement between SIFCO Industries, Inc. and National City Bank dated April 30, 2002, filed as Exhibit 4(b) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.3 Promissory Note (Term Note) dated April 14, 1998 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4(c) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.4 Loan Agreement Between Hillsborough County Industrial Development Authority and SIFCO Industries, Inc., dated as of May 1, 1998, filed as Exhibit 4(d) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.5 Consolidated Amendment No. 1 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement and Promissory Note dated November 26, 2002 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.5 of the Company's Form 10-K dated September 30, 2002, and incorporated herein by reference 4.6 Consolidated Amendment No. 2 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement and Promissory Note dated February 13, 2003 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.6 of the Company's Form 10-Q dated December 31, 2002, and incorporated herein by reference
17 4.7 Consolidated Amendment No. 3 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement and Promissory Note dated May 13, 2003 between SIFCO Industries Inc. and National City Bank, filed as Exhibit 4.7 of the Company's Form 10-Q dated March 31, 2003, and incorporated herein by reference 4.8 Consolidated Amendment No. 4 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement and Promissory Note dated July 28, 2003 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.8 of the Company's Form 10-Q dated June 30, 2003 and incorporated herein by reference 4.9 Consolidated Amendment No. 5 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement and Promissory Note dated November 26, 2003 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.9 of the Company's 10-K dated September 30, 2003 and incorporated herein by reference 4.10* Amendment No. 6 to Amended and Restated Credit Agreement dated March 31, 2004 between SIFCO Industries, Inc. and National City Bank 4.11* Consolidated Amendment No. 7 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement and Promissory Note dated May 14, 2004 between SIFCO Industries, Inc. and National City Bank 10.1 1989 Key Employee Stock Option Plan, filed as Exhibit B of the Company's Form S-8 dated January 9, 1990 and incorporated herein by reference 10.2 Deferred Compensation Program for Directors and Executive Officers (as amended and restated April 26, 1984), filed as Exhibit 10(b) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 10.3 SIFCO Industries, Inc. 1998 Long-term Incentive Plan, filed as Appendix A of the Company's Schedule 14A dated December 21, 1998, and incorporated herein by reference 10.4 SIFCO Industries, Inc. 1995 Stock Option Plan, filed as Exhibit 10(d) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 10.5 Change in Control Severance Agreement between the Company and Frank Cappello, dated September 28, 2000, filed as Exhibit 10 (g) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 10.6 Change in Control Severance Agreement between the Company and Hudson Smith, dated September 28, 2000, filed as Exhibit 10 (h) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 10.7 Change in Control Severance Agreement between the Company and Remigijus Belzinskas, dated September 28, 2000, filed as Exhibit 10 (i) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 10.8 Change in Control Agreement between the Company and Frank Cappello, dated November 9, 2000, filed as Exhibit 10 (j) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 10.9 Change in Control Severance Agreement between the Company and Timothy V. Crean, dated July 30, 2002, filed as Exhibit 10.9 of the Company's Form 10-K dated September 30, 2002 and incorporated herein by reference 10.10 Change in Control Severance Agreement between the Company and Jeffrey P. Gotschall, dated July 30, 2002, filed as Exhibit 10.10 of the Company's Form 10-K dated September 30, 2002 and incorporated herein by reference
18 10.11 Form of Restricted Stock Agreement, filed as Exhibit 10.11 of the Company's form 10-K dated September 30, 2002, and incorporated herein by reference 14.1 Code of Ethics, filed as Exhibit 14.1 of the Company's Form 10-K dated September 30, 2003 and incorporated herein by reference 16.1 Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated June 27, 2002, filed as Exhibit 16 of the Company's Form 8-K dated June 27, 2003 and incorporated by reference *31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a) *31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a) *32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 *32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2004. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. SIFCO Industries, Inc. (Registrant) Date: May 17, 2004 /s/ Jeffrey P. Gotschall ----------------------------------- Jeffrey P. Gotschall Chairman of the Board and Chief Executive Officer Date: May 17, 2004 /s/ Frank A. Cappello ----------------------------------- Frank A. Cappello Vice President-Finance and Chief Financial Officer (Principal Financial Officer) 20 EX-4.10 2 l06921aexv4w10.txt EXHIBIT 4.10 EXHIBIT 4.10 AMENDMENT NO. 6 TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. 6 to Amended and Restated Credit Agreement (this "AMENDMENT") is dated as of March 31, 2004 and is entered into by and between SIFCO INDUSTRIES, INC. (the "BORROWER") and NATIONAL CITY BANK (the "BANK") for the purposes amending and supplementing the documents and instruments referred to below. WITNESSETH: WHEREAS, Borrower and Bank are parties to an Amended and Restated Credit Agreement made as of April 30, 2002, as amended by Letter Agreement dated August 1, 2002 (as amended, the "CREDIT AGREEMENT" providing for $6,000,000 of revolving credits; all terms used in the Credit Agreement being used herein with the same meaning); and WHEREAS, the Credit Agreement has been previously amended from time to time; and Whereas, Borrower and Bank desire to further amend certain provisions of the Credit Agreement to, among other things, amend certain of the covenants contained therein; and NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION I - AMENDMENTS TO CREDIT AGREEMENT A. Section 2B.16 (II) of the Credit Agreement is hereby amended to read as follows: (ii) Advances for Subject Loans shall not exceed an amount equal to eighty percent (80%) of eligible accounts receivable plus fifty percent (50%) of eligible finished goods inventory (the "Borrowing Base"), less a reserve in the amount of Five Hundred Thousand Dollars ($500,000) (the "Reserve"). The inventory advance will be eliminated and the Reserve increased back to One Million Dollars ($1,000,000) on the earlier to occur of (i) APRIL 30, 2004 or (ii) upon Borrower's receipt of at least $4,000,000 in cash from its subsidiary, Sifco Irish Holdings, Ltd. SECTION II - - REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Bank, to the best of Borrower's knowledge, that A. None of the representations and warranties made in the Credit Agreement have ceased to be true and complete in any material respect as of the date hereof. SECTION III - ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS Borrower acknowledges and agrees that, as of the date hereof, all of Borrower's outstanding loan obligations to Bank are owed without any offset, deduction, defense, claim or counterclaim of any nature whatsoever. Borrower authorizes Bank to share all credit and financial information relating to Borrower with each of Bank's parent company and with any subsidiary or affiliate company of such Bank or of such Bank's parent company. SECTION IV - COUNTERPARTS AND GOVERNING LAW This Amendment may be executed in any number of counterparts, each counterpart to be executed by one or more of the parties but, when taken together, all counterparts shall constitute one agreement. This Amendment, and the respective rights and obligations of the parties hereto, shall be construed in accordance with and governed by Ohio law. 1 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their authorized officers as of the date and year first above written. SIFCO INDUSTRIES, INC. NATIONAL CITY BANK /s/ Frank A. Cappello /s/ Terry Wolford - ------------------------------- ------------------------------ Frank A. Cappello Terry Wolford Vice President-Finance and Vice President Chief Financial Officer Dated: 3/31/04 2 EX-4.11 3 l06921aexv4w11.txt EXHIBIT 4.11 EXHIBIT 4.11 CONSOLIDATED AMENDMENT NO. 7 TO AMENDED AND RESTATED CREDIT AGREEMENT, AMENDED AND RESTATED REIMBURSEMENT AGREEMENT AND PROMISSORY NOTE This Consolidated Amendment No. 7 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement, and Promissory Note (this "AMENDMENT"), dated as of May 14, 2004, is entered into by and between SIFCO INDUSTRIES, INC. (the "BORROWER") and NATIONAL CITY BANK (the "BANK") for the purposes amending and supplementing the documents and instruments referred to below. WITNESSETH: Whereas, Borrower and Bank are parties to an Amended and Restated Credit Agreement made as of April 30, 2002, as amended from time to time (as amended, the "CREDIT AGREEMENT" providing for $6,000,000 of revolving credits; all terms used in the Credit Agreement being used herein with the same meaning); and Whereas, Borrower and Bank are parties to an Amended and Restated Reimbursement Agreement made as of April 30, 2002, as amended from time to time (as amended, the "REIMBURSEMENT AGREEMENT" pursuant to which a Letter of Credit was issued in the initial stated amount of $4,225,280; all terms used in the Reimbursement Agreement being used herein with the same meaning); and Whereas, Borrower and Bank are parties to Promissory Note made as of April 14, 1998, as amended from time to time (as amended, the "TERM NOTE" providing for a $12,000,000 term loan; all terms used in the Term Note being used herein with the same meaning); and Whereas, Borrower and Bank desire to further amend certain provisions of the Credit Agreement and the Reimbursement Agreement to, among other things, (a) amend and/or waive certain financial covenants applicable thereto, and (b) supplement certain of the covenants therein; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION I - AMENDMENTS TO CREDIT AGREEMENT A. Section 2A.02 of the Credit Agreement is hereby amended to extend the Expiration Date from MARCH 31, 2005 to SEPTEMBER 30, 2005. B. Section 2B.16 (II) of the Credit Agreement is hereby amended to read as follows: (ii) Advances for Subject Loans shall not exceed an amount equal to eighty percent (80%) of eligible accounts receivable plus fifty percent (50%) of eligible finished goods inventory (the "Borrowing Base") less a reserve in the amount of Five Hundred Thousand Dollars ($500,000) (the "Reserve"). C. Section 5A of the Credit Agreement is hereby amended by adding the following new Event of Default as subsection 5A.07 thereto: 5A.07 If Borrower shall not receive an amount of at least $4,000,000 in cash from its subsidiary, Sifco Irish Holdings, Ltd., on or before June 30, 2004. 1 SECTION II - AMENDMENTS TO REIMBURSEMENT AGREEMENT A. The Tangible Net Worth covenant in the Reimbursement Agreement is hereby amended in its entirety to read as follows: 1. Borrower shall not suffer or permit its TANGIBLE NET WORTH at any time to be less than the required minimum amount. The required minimum amount shall be $25,500,000 effective as of the date of this Amendment. The required minimum amount of $25,500,000 shall increase as of the last day of each fiscal year of Borrower, commencing with fiscal year end 2004, by an amount equal to 50% of Borrower's net income for such fiscal year as measured by Borrower's annual audited financial statements for such fiscal year. SECTION III - WAIVER Bank hereby waives all violations of the Tangible Net Worth covenant contained in Consolidated Amendment No. 5 to the Credit Agreement and Reimbursement Agreement dated as of November 26, 2003 which occurred prior to the date hereof. The execution, delivery and effectiveness of this Amendment and the specific waiver set forth herein shall not operate as a waiver of any other right, power or remedy of Bank under the Credit Agreement or Reimbursement Agreement or constitute a continuing waiver of any kind. SECTION IV - - REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Bank, to the best of Borrower's knowledge, that (A) none of the representations and warranties made in the Credit Agreement, the Reimbursement Agreement or the Promissory Note (collectively, the "Loan Documents") has ceased to be true and complete in any material respect as of the date hereof; and (B) as of the date hereof no "Default" has occurred that is continuing under the Loan Documents. SECTION V - ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS Borrower acknowledges and agrees that, as of the date hereof, all of Borrower's outstanding loan obligations to Bank are owed without any offset, deduction, defense, claim or counterclaim of any nature whatsoever. Borrower authorizes Bank to share all credit and financial information relating to Borrower with each of Bank's parent company and with any subsidiary or affiliate company of such Bank or of such Bank's parent company. SECTION VI - REFERENCES On and after the effective date of this Amendment, each reference in the Credit Agreement, the Reimbursement Agreement or the Term Note to "this Agreement", "hereunder", "hereof", or words of like import referring to the Credit Agreement, Reimbursement Agreement or Term Note shall mean and refer to the Credit Agreement, Reimbursement Agreement and Term Note as amended hereby. The Loan Documents, as amended by this Amendment, are and shall continue to be in full force and effect and are hereby ratified and confirmed in all respects. To the extent any amendment set forth in any previous amendment is omitted from this Amendment, the same shall be deemed eliminated as between Borrower and the other parties hereto as of the date hereof. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Bank under the Loan Documents or constitute a waiver of any provision of the Loan documents except as specifically set forth herein. SECTION VII - COUNTERPARTS AND GOVERNING LAW This Amendment may be executed in any number of counterparts, each counterpart to be executed by one or more of the parties but, when taken together, all counterparts shall constitute one agreement. This Amendment, and the respective rights and obligations of the parties hereto, shall be construed in accordance with and governed by Ohio law. 2 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their authorized officers as of the date and year first above written. SIFCO INDUSTRIES, INC. NATIONAL CITY BANK /s/ Frank A. Cappello /s/ Judith M. Kuclo - -------------------------------- ------------------------------------------ Frank A. Cappello Judith M. Kuclo Vice President-Finance and Senior Vice President/Regional Manager Chief Financial Officer Corporate Banking 3 EX-31.1 4 l06921aexv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION PURSUANT TO RULE 13A-14(A) / 15D-14(A) I, Jeffrey P. Gotschall, certify that: 1. I have read this Quarterly Report on Form 10-Q of SIFCO Industries, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such internal controls and procedures to be designated under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b. paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986; and c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and b. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 /s/ Jeffrey P. Gotschall -------------------------------- Jeffrey P. Gotschall Chairman of the Board and Chief Executive Officer EX-31.2 5 l06921aexv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13A-14(A) / 15D-14(A) I, Frank A. Cappello, certify that: 1. I have read this Quarterly Report on Form 10-Q of SIFCO Industries, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such internal controls and procedures to be designated under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b. paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986; and c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 /s/ Frank A. Cappello -------------------------------- Frank A. Cappello Vice President - Finance and Chief Financial Officer EX-32.1 6 l06921aexv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of SIFCO Industries, Inc. ("Company") on Form 10-Q for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof ("Report"), I, Jeffrey P. Gotschall, Chairman of the Board and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey P. Gotschall -------------------------------- Jeffrey P. Gotschall Chairman of the Board and Chief Executive Officer May 17, 2004 Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to SIFCO Industries, Inc. and will be retained by SIFCO Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 7 l06921aexv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of SIFCO Industries, Inc. ("Company") on Form 10-Q for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof ("Report"), I, Frank A. Cappello, Vice President - Finance and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Frank A. Cappello --------------------------------- Frank A. Cappello Vice President - Finance and Chief Financial Officer May 17, 2004 Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to SIFCO Industries, Inc. and will be retained by SIFCO Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----